Fraud is a huge issue costing financial institutions billions of dollars every year. Both to comply with regulation and in the interest of customer service and retention, it is often the financial institution, rather than the account owner, responsible for losses. Regardless of the responsible party, the losses frustrate confidence and introduce inefficiencies into the financial system.
Counterfeit checks are a particular type of fraud which can cost individual institutions millions of dollars every year. As with all physical documents possessing value, counterfeiters seek to make fraudulent checks then cash or deposit the checks to receive other money before the fraud is discovered.
The problem of counterfeit checks evolved with the emergence of electronic banking, which brought about remote check deposit using check images. With these and other electronic or online banking systems, customers expect quick access to deposited funds, which may be needed for other purchases. Therefore, the time until a check “clears” has decreased, and customers may be unwilling to wait for review of checks deposited using electronic banking before funds are made available. But this presents new hazards with electronically deposited checks and similar transactions. Because the check need not be presented to or examined by a human teller and processing algorithms may be understood by counterfeiters, techniques for defrauding early automated or remote check deposit systems were discovered and spread rapidly. With customers demanding funds be available faster than banks can detect fraud, existing systems are ripe for abuse by criminals.